Cohabiting Disputes

Questions 1

In proceedings under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA 1996), does equitable accounting only apply to the period after cohabiting parties have separated, or can the court consider the whole period they lived together at the property?

Question 2

Where a couple jointly own a property, but one party has paid all repayments in relation to a registered loan during their relationship, can that person argue under TOLATA 1996 that they should have an enhanced share of the sale proceeds?

Equitable Accounting

Equitable Accounting is the process where adjustments are made to the division of the sale proceeds of a property. This is done following an assessment of the parties’ shares, in order for there to be fair split of the assets. This tends to be a discretionary exercise.

Common Arguments for Compensation

Other than occupation rent, the most common arguments for compensation are in relation to:

payment for improvement works to a property or

repayments on a mortgage.

Should the other party benefit from a share of the increase in equity that results from the other’s payments, without also assuming the burden of contributing to the expense in question?

Mortgages & Home Improvements

For example:

If one party had paid £10,000 off the mortgage following the separation, they would argue that they should have £10,000 more of the equity.

If one party had carried out improvement works that enhanced the value of the property by say £10,000 following the separation, they would argue that they should have £10,000 more of the equity, or a refund of the cost of the works prior to division (whichever was the lesser).

Where a mortgage is in joint names, both parties are also jointly and severally liable to repay it as a matter of contract. A party who discharges the other’s liability for a secured debt is therefore classed as the ‘prima facie’. I.e. They have an obvious and undoubted interest in the property.

In this situation they entitled to be reimbursed by them in ‘quasi-debt’/contribution. The position would apply to both payments of mortgage capital and mortgage interest.

In the case of Clarke v Harlowe, the court held that an account would usually be taken from the date of separation. Accordingly, extensive home improvement works (£90,000) made prior to separation by one party counted for nothing. The decision was upheld by the Court of Appeal in Wilcox v Tait.

It is easy to see the sense of this:

An expectation at the time of purchase that the parties would thereafter contribute to the mortgage equally, might soon be superseded.

One party might have to give up work to look after the children, or a relative, by reason of which they could no longer make the financial contribution that was originally envisaged.

Similarly, one party might pay the mortgage whilst the other paid the bills, or for holidays, cars or provided some other quid pro quo. In these circumstances their contributions (directly and indirectly to the mortgage) could be taken to be broadly equal.

The court should not readily embark on a detailed examination of the parties’ relationship and finances or attempt to draw up a balance-sheet of contributions (unless that had been expressly agreed).

Any occupation rent claimed by the party not in occupation is often equated in practice to their liability to contribute to the mortgage, so that those sums cancel out.

In summary:

There is no black and white answer as this is a discretionary exercise, however equitable accounting usually only applies to the period following separation.

The court is likely to be reluctant to attempt to formulate a ‘balance-sheet’ of the parties contributions to the mortgage during their relationship save in the most egregious circumstances.

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